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CIO Scott Martin discusses the recession, energy re-emergence, earnings and consumer staples.
Program: Making Money with Charles Payne
Station: Fox Business News
CHARLES PAYNE: Now, without a doubt, these are tough investing times, but the market is always about the future. So we’re going to try and see if we can go to some sort of a time machine taking a may 20 of 2023. What are we going to be looking back at bringing in right now to to help figure it all out? We’ve got Luke Lloyd, Scott Martin and Rob Luna. Thanks a lot, guys. First, let’s get your read on recession and how your current portfolio is mixed. You know, stocks, cash, bonds, whatever it is. Let me start with you, Scott. Recession, yes or no?
SCOTT MARTIN: Recession now? That’s right. That’s that’s that’s a factor. I mean, that’s really what people are missing. I don’t care if it’s Scott Ryan or all these other goofballs talking about recession in a year, two years, which is ridiculous recessions. Now. Now, the cool part about that is we’ll get through it faster. It’s going to be shallow, but it’s going to hurt and it’s starting to show up in the market. I mean, that’s why the market is going nuts. That’s right. Rates are going down, boys and girls, right now with all these Fed hikes supposedly coming. And yeah, I’m a little fired up today because I saw this great interview with Edward Lawrence and Jim Bullard. I mean, the guy’s foolish, not Edward. Jim Bullard is. I mean, he’s talking about above trend GDP growth. No worries about stagflation. He’s talking about all these great Fed mandates that are ahead, like they’ve blown it between the Fed screwing this up and the administration. And I’m not talking about Whoopi Goldberg supporting Joe Biden. All these people out there, the actual administration has no clue about helping the economy and helping oil prices, helping the consumer. So we have really bad policy out there on all fronts. And that’s where the market is going down. That’s why we’re being driven in recession. The recession is here.
LUKE LLOYD: Yeah, I think Scotty hit the nail on the head there. You know, we’ll find out in a couple of months. We’re actually already in recession right now. But here’s the thing that everybody needs to know. By the time we feel the
most amount of pain economically, the stock market will already be on its way back up. You know, we’ve been pretty cautious for a while, but we’re finally nibbling at some stocks again. Finally, the scariest part to me is that two thirds of Americans are living paycheck to paycheck right now. And what happens when the job market starts to take a turn, which.
PAYNE: It will, which, by the way, we have to point out that’s the goal of the Federal Reserve to make it take a negative turn. The Fed is trying to crack the economy without destroying it. No one has confidence, Rob, that they can pull that off our, you know, recession camp already.
ROBERT LUNA: Yeah, absolutely. I think Elon Musk and if Scott Martin says that we’ve got to be in a recession, Charles, I mean, I think, look, we had a negative print the first quarter of this year. More than likely, we’re going to have a negative print the second quarter. So that would mean we are technically in a recession. We won’t be calling that for a little bit of time. But look, the playbook that you use when you’re preparing for a recession, consumer staples, some of those types of stocks, they’re trading more expensive than the growth stocks now. So don’t think that’s going to be a safe haven, guys.
PAYNE: All right. I want to stay with that, because the action in the market itself has been pretty intriguing. I mean, I don’t think a lot of folks would understand that coming into this session. If you go back to May 11th, the Ark Innovation Fund up 17% and that safe haven staples down 7%, including 10% this week. So, Rob, 20, the top 25 positions in ARK now have a price to sales ratio of six. That’s down from 36. I mean, how do we define value in these moments when you have these big value names they told you to sell at a big loss. You went to the safe havens and now they’re getting clobbered.
LUNA: Yeah, look, I mean, like I said, the safe havens, they’re trading more expensive. Look at Kellogg. It’s trading at 22 times earnings versus 17 times earnings on on metaverse right now. So that’s not where you want to be going. And as you mentioned, Charles, and we’ve really seen this as the market is trying to put a bottom ark yesterday was up four, four and one half percent when the market’s down. That’s exactly the type of rotation we need to see. And guys, look, if you’re looking at 2000 is the playbook, the S&P on the S&P right where it was now, the the PE on the Nasdaq back then was 28. Right now it’s 20. So if you’re looking to look at valuation metrics, we’re not that far off here either.
PAYNE: Luke, you mentioned you started nibbling. What are you looking at?
LLOYD: Yeah. So one of the stocks we started nibbling at is Axon Enterprises. So you got to look at current strong cash flow companies and not look for growth in earnings 5 to 10 years down the road. And the fact of the matter is, we do think that we’re entering a recession and a stock like Axon. They supply tasers and body cams to police officers and military. Right. So crime actually goes up in a recessionary environment. So that’s in an area where we’re looking at. And then also in the energy sector right now, you know, oil is not is had a big run up, but nuclear energy is actually where we’re taking a look right now. CCJ is a stock we just picked up as well because nuclear energy is one of the cleanest energies out there and nobody talks about that. And I actually was just talking with an advisor over the past couple of months that specializes in nuclear energy. It’s getting a lot more political drive. And again, it’s going to adopt a lot quicker than people realize.
PAYNE: Yeah, let me stick with the energy theme. Crude oil now up for the fourth week in a row. We know energy has been like the only shining light with respect to equities. Yet if you look at it long term, over the past 30, 40 years, it’s only a spec of what it used to be. In the seventies it was like 25% in the market. Scott, with that. Is it too late to chase these names?
MARTIN: Yeah. Don’t call it a comeback, because it’ll be here for years. Because I’ll tell you what. Energy is starting to re-emerge. Like you said, Charles, we’ve been adding pipelines. I think we have XL already, but we’ve been adding pipelines like MLP because that’s just going to be the toll booth for the flow of the crew that goes through. But I love Luke’s call. To me, we’re talking about more crime in a recession if we can actually handle it, and nuclear stuff. So that’s interesting plays as well because you’ve got to get creative here. Rob talked about it. I mean, Staples, the one issue, guys, that I have a problem with, I mean, Staples absolutely destroyed this week, absolutely hammered one of the worst week Staples have had in years. Here’s the thing, though. The numbers are so goofy on earnings going forward. If you look at Yardeni, Bloomberg, S&P, J.P. Morgan, everybody’s like 250, $250 on the S&P for 2023. You put a 20 X estimate on that. That’s 5000 on the S&P. Okay, fine. But guess what? If that number is wrong, let’s see. It’s 200. Let’s say it’s even less and you put a less estimate or less multiple on that estimate. You’re looking at S&P 3500 or less, maybe 3000 at fair value. They’ve got to get those earnings
estimate numbers right because PE means nothing if those estimates are wrong and.
PAYNE: They’re supposed to be used for P, which is one of my favorite metrics. Let’s talk about the biggest loser today. Ross stores another major blow to retailers. Obviously, they’re dealing with inflation and these massive inventories just as people are spending less money. On the flip side, though, restaurant sales are going up. We could also see air travel above 2019 levels. Rob, you’ve talked about that sort of reopening of FOMO, a yellow kind of thing. I’m getting my acronyms all confused here. Is that a place we want to be right now?
LUNA: Yeah, I mean, I think so. Look, this millennial generation values activities, they value experiences. They’ll actually sit asleep on their mother’s couch to be able to do that and spend the money. I’ve seen that in my own practice, so I think that’s an area you’re going to want to stay with. And so traditionally those have pulled back during recession, I think, because we’ve already had some weakness in those. That is probably a theme that you could stick with, Charles.
PAYNE: All right, guys, we’ve covered a lot. I really appreciate it. Really good stuff. Luke, Scott, Rob, thank you all very much.
CIO Scott Martin discusses the indicators of recession, the job market, interest rates and taxes.
Program: Cavuto Coast to Coast
Station: Fox Business News
DAVID ASMAN: Kingsview Asset Management CIO Scott Martin joining me now. Scott, you look at all the stocks that that are kind of indicators of where the economy is going. That’s what Wal-Mart is. That’s what Lowe’s is. That’s what Target is. These were, as we were saying in the last hour, these were the safe socks stocks compared to to the Nasdaq stocks, the fly by nights, and they’re down 25%. Are you are we looking square in the face of a recession here?
SCOTT MARTIN: Yeah. The recession is here, David. I think you’re right. I think and I love what you’re talking about with Lauren there previous because you’re right. I mean, you look at Amazon, too. I’d throw that in there. David is a retail bellwether, consumer staple name to some degree for many of us. And I think the recessions here, we had negative GDP growth in Q1. I think Q2 is going to be right there with it. That’s why two, I think the markets, David, as we parse things out in the last couple of months, why they’ve been so negatively reactive to so-so data, you know, they started seeing through, I think, a lot of the data and realizing recession was here or coming. So the good news, though, is that the sooner we get through this, the sooner we’re going to get out of it. And I know that’s not much consolation for many of us who are holding stocks today that are down. But the sooner that we can kind of get through this malaise, the sooner that these falls are drops happen, the sooner the markets can recover and go up. It’s just hard to get through at times.
ASMAN: It’s a strange recession. And again, so it was 2009. So we’ve had some recent history of strange recessions. But one thing that’s so strange, we have such a surplus of jobs, usually recessions and and lowering job numbers go hand in hand. In this case, we still have that overhang of 11 million unfilled jobs. Are those going to dry up pretty quickly if we’re smack in the middle of a recession?
MARTIN: Some will, but it doesn’t matter if they do because you’ve got two jobs for every one person that’s looking for a job. So they have some room to do that. I think it’s a great call by you to say it’s a strange recession, which almost like write a song with that title because then you’ll be on vocals, of course, and me on keys. Because here’s the thing. I mean, I don’t want to sing in front of anybody ever again. But here’s the thing. You’re right, David. That also probably means, though, that this recession, because I believe it’s here, will be short and sweet in the sense of we’re not going to see that crazy real estate fallout we saw in oh nine the crazy drop that we saw in oh one. We had the tech crash, terrorist attacks. We had a big jobs recession back then, too. So this could be a short and shallow one. But the key aspect behind this, the man or woman, if you will, behind the curtain is Treasury Secretary Janet Yellen and Fed Chairman Chairman Jerome Powell. Because they’re raising interest rates, David, into a recession now pretty precipitously. So how does that shake out with respect to negative GDP growth? Two quarters in a row and we’ve got, what, about 200 basis points in hikes coming down the pike from the Fed?
ASMAN: You know, the that’s not the only thing they’re raising. They’re also raising the number of regulations we have to deal with, particularly in the energy industry. And that’s causing more inflation. That is to say, all of the pressures that are causing inflation are just increasing the policy pressures. So I don’t think we’re going to end the inflation thing any time soon. The recession may be short lived because of the the economy coming back online after the pandemic, but the inflation is going to remain with us and stubbornly really kind of put a cap on growth, don’t you agree?
MARTIN: I agree to some degree, I guess I could say. I mean, I think the inflation picture, though, is starting to peek out a bit. We’re still high.
ASMAN: Oh, I don’t.
MARTIN: We’re starting to slow that rate of growth. Well, I think we’re starting to slow the rate of growth, David. I mean, we’re we’re going.
ASMAN: To wholesale now, forgive me for interrupting, but look at the wholesale prices, which are are precede the retail price increases. We’re in double digits on wholesale prices.
MARTIN: Sure. And that’s true, David. But that’s also a reflection of the fact that we have supply chain issues that are starting to get worked out slowly but surely and likely coming as as a reflection of slower demand because of the recession that’s here or coming. So that will help hopefully relieve some pressure on prices. But still to that point about where inflation is going forward, how companies are trying to pass along, we saw target comment on that as well. It’s really impacting that tried and true tried and true consumer that’s been holding us up all through, say, the pandemic.
ASMAN: Yeah. Yeah. And part of the other craziness of this recession, if we’re in it already, is the fact that you have so few houses. So even though recessions really hurt the housing market and it may hurt this time as well, because we have such a dearth of product of inventory in housing that may be secure if particularly if it’s a short lived recession. But it’s interesting, you’re the second market analyst we said we’ve had on who said it’s virtually 100% sure that we’ve got a recession coming. So it’s it’s not good news, but we’re going to have to learn to live with it. Good to see you, Scott.
MARTIN: Sooner the better. We’ll get up it quicker. See you David.
ASMAN: Thank you, Scott Martin, my friend. Thank you.
Download the PDF here for the full commentary.
PORTFOLIO MANAGER INSIGHTS
WEEKLY INVESTOR COMMENTARY | 5.18.22
Many investors face the constant struggle of wondering whether the rules of investing have changed. This is especially true today given how much has evolved over the past two years. Investors are adjusting to a new economic landscape of higher inflation, rising interest rates, and tighter Fed policy. Different parts of the market have swung wildly throughout the pandemic recovery, including tech stocks, energy, bonds, crypto, and more. It can be difficult to judge whether these developments change the nature of investing or reflect normal market behavior. In these situations, how can investors stay focused on the core principals of investing?
As the saying goes, those who don’t learn from history are doomed to repeat it. For investors, perhaps the most important historical lesson for the economy and financial markets is that both operate in cycles. There are well documented booms and busts across centuries in addition to those that investors have experienced over the past few decades. However, it’s also the case that markets fluctuate within cycles, making it difficult to judge whether a large market swing is a true turning point or a temporary event.
This matters because some investments are simply more prone to big booms and busts. Technology, for instance, often makes bold promises of reshaping the future. In the cases when these promises are realized, it seems silly to have focused on earnings or valuations in hindsight. The same argument has been made for cryptocurrencies, artificial intelligence, financial technology, and many other sectors. It often feels as if these claims are accelerating alongside technological advancement.
However, the reason to focus on fundamentals is exactly because it is difficult to predict the exact winners. The transformative nature of technology is exciting but also a reason it is difficult to forecast its impact. Trying to predict the tech winners in the late 1990s, among the thousands that did not survive, would have been quite a feat. Instead, using a disciplined portfolio approach allows investors to take advantage of these trends while protecting from downside.
The Nasdaq has fallen into bear market territory
1. The Nasdaq is in bear market territory compared to its recent all-time highs. While this is challenging for many investors, it caps off a spectacular run that accelerated during the pandemic.
2. Staying invested across sectors, not trying to pick individual winners, and staying invested are still the best ways to manage this market environment.
Additionally, it can be argued that the impact of the information technology revolution of the past two decades was felt across the entire economy. There is no major corporation today that is not heavily dependent on digital technology, and many “technology” companies are now found across market sectors beyond Information Technology, including Communication Services and Consumer Discretionary. This has helped to boost productivity and increase profit margins via digitization, automation, and more. Thus, focusing on only a single stock or industry doesn’t quite capture the true impact of transformational technologie
Bitcoin and the S&P 500 have generated similar returns
1. For investors, risk-adjusted returns are often more important than absolute returns. Bitcoin, for instance, garnered significant attention by rising in spectacular fashion over the past few years.
2. However, with recent problems around rising rates and issues such as stablecoins, Bitcoin and the S&P 500 have generated similar returns over the past several years.
Of course, market prices and valuations can deviate from fundamentals for quite a while, as was the case recently. Trying to get the timing right is nearly impossible, and being too early is often the same as being wrong. Today, the stock market is still well above its levels both prior to the pandemic and at most points during the recovery. For the average investor, trying to time the market rather than holding onto an appropriate portfolio would likely have done more harm than good.
Investors should focus on long cycles and not short-term swings
1. The stock market operates in cycles. Not only is this normal, but investors should not overreact to short-term pullbacks that occur within a cycle. Instead, the gains that are made in bull markets are what allow investors to gain true financial independence – if they have a well-constructed portfolio and stay the course.
Ultimately, much of investing depends not just on facts and figures but also on our own behavior. While it’s clear that there are manias, booms/busts, and expansions/contractions in the economy and markets, it is difficult to know how any particular situation will play out. What makes this more difficult is that downturns tend to occur swiftly, often with little notice, while rebounds occur slowly and steadily. This means that market pullbacks can drive a greater emotional response even if history shows they occur regularly.
Thus, this challenging market environment is an ideal time to remind ourselves to stay invested, diversified, and disciplined.
Historical references do not assume that any prior market behavior will be duplicated. Past performance does not indicate future results. This material has been prepared by Kingsview Wealth Management, LLC. It is not, and should not, be regarded as investment advice or as a recommendation regarding any particular security or course of action. Opinions expressed herein are current opinions as of the date appearing in this material only. All investments entail risks. There is no guarantee that investment strategies will achieve the desired results under all market conditions and each investor should evaluate their ability to invest for the long term. Investment advisory services offered through Kingsview Wealth Management, LLC (“KWM”), an SEC Registered Investment Adviser.(2022)
Kingsview Partners CIO Scott Martin discusses the level of bearishness in the market, technical indicators like stochastics, MACD or relative strength, and the optimism in earnings estimates.
Program: Making Money with Charles Payne
Station: Fox Business News
CHARLES PAYNE: You know, they say the bell doesn’t ring at the top or bottom in markets and individual stocks, though we do know this, individual stocks and markets can become overbought and oversold. I mean, look at this yesterday. That’s the fear and greed index. It got a lot closer to the worst possible degree of fear. We also learned individual investor bullishness declined again, and yet it remains substantially below historic levels. But I got to be honest, I kind of like what I’m seeing with the the bearishness. It’s receding, you know? Yeah. The survey is obviously considered a contrarian indicator. The lower the bull rates, typically the better. But I like that that bearishness is also beginning to ease a little bit because it means to me that investors are becoming neutral and that they may be more open minded to sort of sifting through the ashes. But it’s not just about surveys. I mean, in real life, folks, take a look at that active managed equity exposure. It’s declined below 30%. These are money managers, folks. That’s always a good sign. Meanwhile, consumer sentiment remains in a freefall. Today’s report plunging to a rate of 59.1 from 65.2. Here’s what you need to know. The Street was looking for 64. In fact, all aspects of this report are problematic, but none more so than buying conditions for durable goods. What you’re looking at is an all time low. Yeah, it’s flashing a red flag. Through it all, the market has held tough. We’re trying to finish the week on a positive note. Joining me now to discuss, David Dietze and Scott Martin. You know, earlier this week, our friend Ed Yardeni wrote a pretty good piece about people being too bearish, investors being too bearish on the market if your time horizon is a year or longer. Scott, is he right?
SCOTT MARTIN: He’s right 100%. And we’ve seen this movie before, Charles And it happens every time now. It happens to different degrees every time. It’s not always the same level of bearishness to what you pointed out in your intro there, which was awesome because that stuff that I look at to my man, but there’s overabundance of bear bearishness every time there’s too many sellers, every time there’s forecasts and telegraphing of recessions, bear markets, pullbacks, negative GDP, stock crashes that everybody seems to know about and they never happen. And so when I look at things in the marketplace, Charles, specifically even technicals like things like stochastic or things like relative strength, and those things are down in single digits or in the case of relative strength or MACD. I know these are crazy things to throw out. Technical indicators is what they are. Kids effectively when they get really negative. Guess what? And when you feel sick putting the trade in, that’s when it’s a good trade. And that’s what we’ve been doing this week.
PAYNE: David, what do you think? I mean, again, you know, this whole game of picking a bottom we know is folly. But every time you look back and you say, that was the zone, that was the area, we should have at least have begun to nibble. Is that right, that maybe the market’s become investors have become too bearish?
DAVID DIETZE: Yeah, absolutely. You know, I love the slogan stocks don’t grow to the sky and they don’t keep falling forever. And certainly we saw a lot of indicators at the start of this week which are consistent with capitulation. There were several days there may have been up to three days when 95% of the volume was on the downside. Of course, we’re up to even after today’s strong results here, seven weeks in a row down for the Dow. We haven’t seen that for over a decade. And as you point out, it was started with the retail investor, with the eye surveys getting very bearish, but now it has spread into the professional investors. And when you see that you are primed for a bounce, often see 5 to 7% bounce from these conditions.
PAYNE: What about this report this morning? You know, this this sentiment read, of course, the PPI and CPI number. Both were also disappointing. We had negative reaction to that, that the Fed didn’t you know, we didn’t get a negative reaction to this, even though the consumers two thirds of the economy. Is this the kind of negativity the Fed is actually looking for?
DIETZE: Yeah, I think so. You know, when the stocks stop going down, even amidst bad news, you suggest that a lot of that’s already been priced in. Investors have already braced for the worst case scenario. And that’s why I think we’re getting a bounce here despite some, you know, disappointing news on the CPI.
PAYNE: Let’s talk about earnings season. I know we’re almost at the tail end of it. Over 450 companies have reported, you know, I give it a, B, B plus, maybe C plus. Here’s the thing, though. Many are saying that Wall Street many people on Wall Street are saying that Wall Street estimates are too high. Therefore, the market is a lot more expensive than metrics like, say, for P e ratios, which suggests. Let me get your thoughts on that, because at the end of the day, the market, you know, earnings are the mother’s milk of stock market rallies. Are we being too optimistic about earnings going forward, Scott?
MARTIN: Yes. In a way, I think we well, let’s put it this way. I like how you set that up, Charles. Earnings earnings estimates are pretty darn optimistic. I mean, if you look at any any estimates where you look at Jp morgan Bloomberg, pick your favorite one. Justin Bieber, I’m sure, has got some estimates. The point is, is that they’re all sanguine. I mean, they’re really up. I mean, you’re talking about ten, 20% growth over the next couple of years. That’s probably a touch high in the sense of where we know things are right now and that it doesn’t mean they’re going to grow negatively or be negative or stay flat. But your point is well taken. The market is going to pay for those future earnings. So let’s just pick a number. Let’s say the earnings, say, for the S&P five in 2023. Let’s pick a good number, a fair number, $250. Let’s put a 20 multiple on that. That’s five K. Boys and girls for the S&P at fair value. If you want to put a 20 on it. The question is, Charles, I would take it from saying maybe the earnings are a little bit sanguine, a little bit high, but what’s the multiple the market is willing to put on that? 20 is not a bad multiple if rates aren’t going to the sky if inflation’s under control, if midterm elections go the way of, say, the Republicans and maybe we get some people back to work finally and kink the supply and supply chain issues. So I’m willing to take that bet at five S&P. That’s what we’re going to be based on, 250.
PAYNE: And to that point, David, you know, we almost have this conversation at the end of every earnings report. Everyone’s too optimistic. Earnings come around and 78% of the earnings be 80% of revenues beat. So it feels like we’re always beating the street anyway. I mean, is it becoming almost it doesn’t matter. We know earnings matter, but it feels like the earning calls and the earnings, unless this season it was almost always knee jerk sell offs. I mean, when do we decide it is a good earnings season?
DIETZE: Well, I think there’s two things. It has been a good earnings season, but there is a game, of course, as you point out, where companies and analysts keep expectations down so that their companies can be. And of course, that’s
PAYNE: Everybody’s sandbagging.
PAYNE: The CEO thinks they’ll make a buck. He says $0.90. The analyst thinks they’ll make $0.90. He says $0.85. And if they make a buck ten, we’re all happy and everyone looks good.
DIETZE: So the problem has been going forward and quite frankly, with Russia, Ukraine, and you got China and you’ve got the inflation in the Fed, the the outlooks from the corporations are very, very modest and so forth. And so that’s not giving support to stocks. But again, we know it’s part of the game to sandbag it.
PAYNE: All right. So what happens now then? You just brought up the Fed. What happens between now and that next Fed meeting? Because almost all the important data is out, the jobs report, the CPI report, all the earnings are out. It’s a waiting game. What does this market do? Does it remain rangebound? Can the bias shift back to the upside?
DIETZE: Well, I think we’re going to be focused on the macro factors. I think the number one macro factor is really going to be signed for we’re past peak inflation. If we can do that, then I think a really hawkish Fed is going to be somewhat taken off the table and we’re not going to have these bond yields continuing to shoot up. So that’s the number one thing to look for. Obviously, the Fed speak highly interpreting that macro data also is going to weigh heavily.
PAYNE: So how are you looking at it, Scott? Again, you know, between now and that next Fed meeting, it’s going to seem like an eternity. I think we all know 50 basis points, even though there’s some folks out there still begging for 75. I wouldn’t mind 75. And if that’s the case, then what do you what would you be buying here under that notion?
MARTIN: So to sum it up in a word, nothing is going to happen. That’s a Seinfeld reference until that meeting, because of the fact that it’s like well, like David said, I mean, there’s not enough.
PAYNE: Scott the markets are going to open and they’ve been tremendously volatile. You mean we’re just going to kind of have these little pedestrian sessions where we’re not up or down that much?
MARTIN: Great point. Now, I should have said that. I should have clarified it basically, like we’ll be at the same levels probably, Charles, but it’s going to feel like an attorney, like you said, because we’ll have these crazy moves, five, 10% and some of these individual names like AMD, for example, when the stock may be at the same level. The key point, though, is yours. What is the Fed do in June? Because if they get closer to maybe saying they’re going to do 75 or stay at that 50 level, I still think the market can handle that. And that’s something that the market can look at constructively where get these bots, get these AI stuff out of the way, get real investors back in there, get some of those institutions back in there to pick off some value here and you’ll start to see the market levitate upward.
PAYNE: Real quick, David, are you buying anything right here?
DIETZE: Yeah, absolutely. So I’m going to highlight Applied Materials Tech, of course. As we know, Nasdaq down close to 30% coming into today. So I’m looking for those quintessential blue chips. We know we’ve had a chip shortage forever. And of course, Applied Materials makes the equipment that allows chip manufacturers to to make the chips. And so it seems to me, no matter what type of chip you’re talking about, Applied Materials.
PAYNE: And of course, earlier in the week, Taiwan Semiconductor said they’re raising their prices at least 6%. So I like that idea. David Scott, thank you both very much. Have a great weekend, guys.
Kingsview CIO Scott Martin discusses Musk’s purchase of Twitter, what’s been happening with the stock, and recent rallies in the market.
Program: Your World with Cavuto
Station: Fox News Channel
NEIL CAVUTO: To Susan Lee on that, Scott Martin of Kingview Wealth Management. Susan, looking at that, if I’m a Tesla shareholder and I think the guy and the genius behind my company might not pursue or be distracted by by this other company, I’m going to be happy. Conversely, if I’m a Twitter shareholder, every company and I’m going to go the other way because this thing is looking dicey, or at least at its price. What are you hearing?
SUSAN LI: Yeah, and if I’m Elon Musk and I’m pledging some of my wealth in that $44 Billion takeover offer, I want the best deal, especially if social media companies are down 25%, discounted 25% since I made that bid. And you know, Elon Musk, he’s not just putting up this bid by himself. So he’s probably huddled with the Larry Ellison’s and other potential private equity, those other financiers in this deal, saying, should we be paying 54 to 20 when Twitter is trading at $40? I think there’s probably been a rethink, and especially in these times, by the way, where $1,000,000,000. Yes, that sounds like a lot for most people, for Elon Musk, not much. And especially if you can get the the property for cheaper for $10 cheaper, that might be a deal for him.
CAVUTO: You know, Scott, I wonder what the background for this could have been or backdrop and that is safe today. The selloff in technology shares, even Tesla shares to the point that, you know, he’s lost tens of billions of dollars on paper. Now he’s still the world’s richest man by far. I got that. But do you think secretly or privately he reassesses this? You know, that continues. I’ve got problems.
SCOTT MARTIN: Great call. It was a game. I think it was a game from the start, as we talked about on FBN a couple of times, Neil. Here’s the thing, though. Musk won because remember the libs that got freaked out about when he was coming in to even talk about buying Twitter and then when he made the offer and they accepted it. I mean, I watched the reaction of a lot of the left wing liberals and they got freaked out. I mean, they dedicated their
whole shows, their whole Twitter accounts to how this was a takeover and it was going to mess up free speech and all that stuff. So he laughed. I mean, he kind of got the reaction that he wanted. And to Susan’s point, the stock was probably the buy was probably too much, 54 to 20. Everybody knows why he did that. He’s probably going to come back in and say, hey, I’m going to offer 42. And if you don’t know what that means, go watch Dazed and Confused. All right. Because here’s the thing. He got kind of the reaction that he wanted for $20 billion.
CAVUTO: It’s a it’s a pot reference. It’s a family show.
LI: Exactly. April 20th recognized pot thing. So, you know.
CAVUTO: That’s right. But but on that point and it’s a very good one on Scott’s point, Susan, this issue with the technology sector in general, it had an extremely, extremely rough week and a lot of the stocks have been decimated. We can get off those boards, guys. I’m wondering here, talking about the markets now and talking about where they stand. This deal notwithstanding, I have a feeling that a lot of tech investors are debating, all right, I’m up a little bit. I’m going to cash out now when the getting’s good or how does this play, you think?
LI: And what’s the pain threshold? Is $11 trillion in losses enough? As Scottie will tell you, in these type of bear market sell offs, you have markets and sellers really exhausting themselves, meaning that they run out of things to sell and usually want to sell the things that you like the most lasts. And I think the fact that Apple fell into bear market territory down some 20% from recent peaks yesterday, probably the most widely held stock on the planet, the most liked since it’s a cash machine and returning a lot of cash to shareholders. And that’s why Warren Buffett bought in. I think that was an inflection point thinking, okay, well, I’m already selling my favorite stocks. What else is there to sell? And maybe there isn’t that much more in the portfolio and especially on a Friday. I think it’s indicative if stock markets go up, especially when you heard Jerome Powell yesterday talking about short term pain to get inflation lower and raising interest rates by one full percentage point, at least this summer and stocks in the week lower. Higher part of me and stocks rally into the weekend. I think that’s positive.
CAVUTO: If you have a rally, do you want to believe, Scott? You normally need to see it at least for a second day. And the rallies that we’ve seen have been one day wonders. I’m not dismissing this or pooh poohing it. I’m just saying that’s been the way it’s been going. How important will Monday trading be to you?
MARTIN: Big. Although today, to Susan’s point, was great. I mean, we actually held the rally most of the day in rally to beat into the close. I’ll tell you what, Neil, the only thing left in this market, though, there aren’t a lot of sellers left. It doesn’t look like, but there’s still emotion. And so as an investment manager for many of our clients and even my own account and both the Twitter hold her and a Tesla holder. So I need my medication this weekend. I’ll tell you what, when you’re buying stocks, when you buy something and you have to go to the laboratory afterwards, that’s probably a good buy. But if you’re buying something and it feels like it’s a surefire win, you’re complacent. This is a can’t miss. That’s when you should be selling. So take your emotion, flip it around, and that will tell you what to do.
CAVUTO: I could help you with that medication thing, young man, but that’s a whole separate issue.
MARTIN: Send it over. I’m out.
CAVUTO: Yeah. All right, guys. Thank you both very much. Have a wonderful weekend.
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PORTFOLIO MANAGER INSIGHTS
WEEKLY INVESTOR COMMENTARY | 5.11.22
Perhaps nothing summarizes the investor experience better than the old quote that “nothing worth doing is easy.” The current market environment, as uncomfortable as it may be, serves as a reminder that staying invested is difficult. The very definition of investing involves sacrificing what we could buy and consume today in order to achieve more tomorrow. Over long periods, this is how all investors can transform hard-earned savings into true wealth and financial freedom. What can investors do to focus on the long run when the daily headlines and market swings are alarming?
The tendency to react to what’s happening today at the expense of the next year or decade is a natural one. Last week, the Federal Reserve raised interest rates by half a percent (50 basis points), the largest increase in over twenty years. After a short recovery, major stock market indices began to struggle once again. At the moment, all major U.S. indices are down more than 10% for the year, with the Nasdaq now deeper in bear market territory. This is no doubt a challenging time for many investors, both emotionally and financially, especially for those who are either accustomed to or have only experienced the rising markets of the past decade or more.
One of the core principles of investing is that there is no reward without risk. Simply put, having the fortitude to stick it out when times are tough is exactly why long-term investors are rewarded. In general, this is why stocks have historically achieved greater average returns than “safer” assets such as bonds: these returns are compensation for withstanding greater uncertainty. Occasionally, there may be times when investing seems easy and all prices rise, irrespective of risk, such as over the past two years or during the dot-com boom. When these periods inevitably end, it becomes clear which investors were truly following a disciplined plan and which were just following trends. In times like these, it’s important for long-term investors to remember a few historical facts.
Major indices have swung wildly over the past week
1. All major indices are in correction territory and the Nasdaq is officially in a bear market. This level of volatility, while extreme compared to the past two years, is par for the course when investing in stocks.
2. In fact, the reason stock market investors are rewarded over time is exactly because they are willing to withstand a higher level of risk.
First, it’s important to maintain a broader perspective. While the stock market is in the red for the year, zooming out paints a very different picture. The S&P 500 has gained 65% over the past three years, 22% since the pre-pandemic peak in early 2020, and 79% from the pandemic bottom. While investors may prefer a smooth ride, with steady gains day after day, this is unfortunately not how the market operates. Instead, the price of long-term gains is the ability to stomach short-term declines.
Staying invested is the best way to manage challenging markets
1. While the temptation to react to market events is natural, history shows that simply staying invested is often the better approach. This is because timing the market is hard if not impossible.
2. Big down days are often followed by up days shortly thereafter. Trying to predict these day-to-day swings is unnecessary and often counterproductive.
Second, a common refrain from the investment profession is that “market volatility is normal.” What this typically means is that the stock market can swing wildly even when there is little new information. This year, the S&P 500 has experienced four distinct 5% declines. While this may seem like a lot, the average year experiences four to five of these pullbacks, most of which recover in weeks or months. The pandemic caused 12 such pullbacks in 2020 and there were eight in 2019 during the global growth scare that year – a time when many expected an immediate recession which never materialized.
In the long run, fundamentals are what matter
1. Over the course of years and decades, fundamentals like valuations and earnings matter much more than daily headlines on the Fed, individual stocks, politics and more. The strength of the economy, fueled by business innovation and consumer spending, have propelled the stock market forward cycle after cycle.
Third, what drives markets in the long run are not day-to-day headlines, stock predictions, or even year-end targets. Instead, the vibrancy of the economy, the strength of the consumer, and the profitability of companies large and small are what support stock prices over the course of decades. After all, owning a stock is nothing more than owning a share of the profits of a company. While interest rates, inflation, geopolitics, and other factors affect the calculated value of this ownership, these effects also tend to average out over time. At the moment, consensus expectations are that S&P 500 earnings-per-share could rise 10% this year and 9 to 10% each of the next two years. Even if these forecasts decline a bit, these levels of growth can help to support valuations and market returns.
None of this discussion is meant to ignore or downplay the challenges that lie ahead for markets. However, many of these challenges are already widely understood by investors who have been grappling with them for months, if not years. The point is that investing activity can occur over many timeframes, so it’s important for investors to pick the one that matches their financial goals, and to know that the process will be worth it even if it isn’t always easy or comfortable.
Historical references do not assume that any prior market behavior will be duplicated. Past performance does not indicate future results. This material has been prepared by Kingsview Wealth Management, LLC. It is not, and should not, be regarded as investment advice or as a recommendation regarding any particular security or course of action. Opinions expressed herein are current opinions as of the date appearing in this material only. All investments entail risks. There is no guarantee that investment strategies will achieve the desired results under all market conditions and each investor should evaluate their ability to invest for the long term. Investment advisory services offered through Kingsview Wealth Management, LLC (“KWM”), an SEC Registered Investment Adviser. (2022)
Kingsview CIO Scott Martin discusses recent Fed statements, a negative GDP and consumer & investor confidence.
Program: Mornings with Maria
Station: Fox Business News
MARIA BARTIROMO: And it’s time for the word on Wall Street. Top investors watching your money. Joining me right now is Kingview Wealth Management chief investment officer and Fox News contributor Scott Martin, Strategic Wealth Partners President and CEO Mark Tepper and UBS Financial Services private wealth advisor Ali Macartney. Great to see everybody this Thursday morning. Thank you so much for being here. Scottie, let me kick things off with you after this big move from the Federal Reserve. Biggest move in rates in two decades, half a percentage point higher. What are your thoughts on what we heard from the Fed? I know you said that inflation is going to cool down in the next few months. You’re not saying it’s transitory, are you?
SCOTT MARTIN: I wouldn’t dare unless I want to get kicked off the show and probably off the earth. Which is funny because what a day yesterday was. I mean, and I agree with a lot of things that have been said so far on the lovely show today. Maria is especially what dagen was noting about the Fed said a lot of weird things yesterday, if you ask me. I mean, this is coming from a fed chairman that has already been wrong and so wrong and I think continues to stick his neck out there and say things that just don’t make sense. I mean, when you talk about the economy being so strong, being able to withstand more rate hikes, including the one we had yesterday, yet we have negative GDP. Now we have the productivity numbers. You mentioned we have retail sales that are in jeopardy, consumer confidence, investor confidence as well. And then you also have the fact that the Fed is dovish at heart. And that’s really the thing that I think a lot of investors are forgetting about. We have a mid-term election coming up. We have a Fed chairman that is appointed by President Biden on his second term and one that has shown that in times of crisis, the Fed will back off, the Fed will step back. And you talked about this with the gentleman from Oxbow this morning leading off the show, Maria. I think that’s really the risk here is that the Fed talks tough, says that the economy is great, says that inflation is maybe not transitory, but maybe moving on to another country or another planet hopefully and says we don’t have to do as many rate hikes as the market thinks.
And that will support stock prices here, at least for the temporary term, until the economy really shows itself to be weaker than expected. And therefore, stock prices come down to reasonable valuations again.
BARTIROMO: Well, look, it’s not, you know, wrong to think that we could be seeing peaks in inflation. A lot of people believe that. I don’t know if it’s transient or temporary or what, but that we’ve seen the worst. Mark, Fed Chair Jay Powell said that he’s not predicting a recession and that he sees a strong economy. Now we’re seeing a contraction in the first quarter. We got that number last week. But the debate is if the Fed is actually being too optimistic here, what do you think?
MARK TEPPER: Yes. And Jay Powell is way too dovish. So if you go back to 1950, 75% of the times where you have a negative GDP print, you are in a recession. So for him to get up there and say the economy is strong, he’s he’s either lying or he just doesn’t know what he’s doing. And then for him to say that that he’s confident he can hike rates and avoid a recession, I think he’s out of his mind there, too. I mean, look, volatility is obviously back in the market. We’re now seeing stocks trade at greater than 1%. I think it’s happened 87% of trading days so far this year, which is a big shift from how stocks have been trading during the QE era, going all the way back to 2009. And look, you know, just like Scott said, I mean, look, I manage money. I should be incredibly happy that the market rallied 3% in the last hour or so yesterday. But look, I think that says something about how dovish the Fed is. I think we should have hiked 100 basis points yesterday. I know that’s way out of consensus. I was hoping the Fed would meet me in the middle. You know, I’m happy the market went up for myself and all my clients, but I don’t like when it goes up, only to crash even harder later on. And if we don’t beat the living crap out of inflation, we’re headed for a much longer and a much deeper recession than a lot of people believe. And yes, I manage money, but I’m also a small business owner. A lot of my clients are entrepreneurs, a lot of my friends own businesses. So while Wall Street cheered on this 3% rally yesterday, Main Street businesses are just getting pummeled by inflation and they want to see that become the number one concern of the Fed is fighting inflation and getting aggressive and doing it the right way.
BARTIROMO: Right. Well, one of the reasons for the rally was that he basically squashed the notion that we would see a 75 basis point move any time soon, saying that the board is not actively considering 75 basis points. But he did say that we’re likely going to see 50 basis points hikes in June and July. Ali, let me just say that the Bank of England this morning is raising interest rates, the B of E saying that it is expecting the economy in England to contract in 2023. You’ve got a war in Ukraine, Ali. You’ve got expectations that we’re going to see a recession in Europe before the US and maybe come to the US by 2023. How do you want to allocate capital in this environment?
ALI MCCARTNEY: All of that is true, Maria. And it is a terribly scary time to be an allocator of capital, to Mark’s point. However, I take a different view of a lot of the data. So I think the GDP print, although contraction, although indicating a contraction, was very much amplified by a record trade deficit. We see a lot of things to be positive about. And yesterday I think what you had was an acknowledgement that there is not an absolutely hawkish Fed, which everybody seemed to love. When you saw the rally. You saw growth names come back stronger as those are tied to interest rates. The things that I think you need to look for right now, you’re not not big moves, not big trades. You need to make sure that you still have commodities exposure. It is already gone. It’s had a tremendous year. Given all of the issues that we’re facing, we still see high single digit returns for this year. We still like energy. There are many, many, both structural and long term and idiosyncratic challenges, but that is going to keep the price up. We see demand over the next ten years continuing to grow into this energy transition, and we like health care because of both its defensive and growth like natures within it and its discount to how it’s trading. But I would say the thing that we are watching for the most to the points that have been made today is the inflation print next week looking at April inflation. That’s exactly right. Even bigger than the meeting we saw yesterday. And what I’m hearing from my CEO clients is that they have seen a number of weeks of flat costs and they are starting to get bullish and starting to make a lot of capital investments. And that’s what we need to avoid a recession.
BARTIROMO: That. That is the exact point to make. I totally agree, Ali. We’re going to get the CPI number out on Wednesday, May 11th. That’s going to be the focus for these markets. We’re running at eight and a half percent year over year. Do you expect, Ali, that we are going to see a lower number? Are there indications you’re saying there are leaks and conversation? Do people think it’s going to come in lower than that? Do they think that it’s actually peaking here, as Scotty said earlier?
MCCARTNEY: Yeah. Yeah. We expect and we hope that March is going to prove to be the peak that it either flattens or goes down month over month. And if we start to see that now, look, with all of the challenges we just talked about with energy, that’s always a wild card going forward. But as long as we talk about peak and the derivative of the derivatives, as long as that’s behind us, then business and individuals, big and small, can start to make capital allocation decisions which are going to add to the GDP of this country.
BARTIROMO: And by the way, before that, you’ve got several days of Fed speakers out, whether at graduations or giving giving speeches, Williams, Kashkari, Bostic, Bullard, Dailey, Waller, Mester, all out speaking. So we’re going to be talking about this inflation story going into the CPI on Wednesday. Great word on Wall Street, everybody. Thanks very much, Scott Martin, Ali McCartney, we will see you soon. And Mark Taper is sticking around. We’re so happy you are with us all morning long.
Kingsview CIO Scott Martin discusses events in China and the effects of COVID there, plus their rules and regulations.
Program: Cavuto Coast to Coast
Station: Fox Business News
NEIL CAVUTO: One little unknown fact here. There was a scene in Spider-Man that featured Scott Martin, and the Chinese said, We don’t want it if Martin’s in that we got an X him out that Sony did agree to get it. Very good to see. You know it’s got a that’s.
SCOTT MATIN: That’s why I didnt get the check.
CAVUTO: I hear you. I hear. This is very unusual. No, I mean, Lydia was getting into it, and it did take my memory. I remember once upon a time, and it they have a steady policy of just not taking up from anyone, even back to the interview. Remember that on the North Korea, you know, dictator and all they risk a lot doing that, don’t they?
MARTIN: They do. And it’s just more oppression. It’s more filtering by the Chinese government that ultimately hurts their people. Now, the question on Sony’s behalf and some of the other companies, Neil, that I mean, look, you look across the S&P 500, half of the earnings of the S&P 500 these days come from overseas. And a large part of that overseas amount is China. So companies need China. I mean, China’s middle class is the size of our entire country’s population and it’s emerging and growing even bigger. So that’s a huge amount of people that companies like Sony want to have see their movies. But it is an interesting point to what Lydia raised about where’s the where’s the line as to where companies are going to say, no, we’re not going to change that. I mean, one of the things that that really hurt me back in the day that China did was they banned Justin Bieber in 2017 from playing over there because of his bad behavior. I mean, the guy is a saint, so they’re trying to really filter out and admonish a lot of the things that are coming from the United States just to have control over it.
CAVUTO: Well, I was for that particular action. But in all seriousness, I do find interesting that, you know, a lesson to be learned here, I mean, that at great
risk to their finances. Sony, you know, at least three or four times has said we will not have other countries dictating what we show eventually. And that could hurt the bottom line. Of course, no one’s crying for the money that, you know, Spider-Man and the entire series has made to say nothing of some of these other flicks. But maybe it will embolden others to think China, especially now, is in a position not to be calling the shots. What do you think?
MARTIN: Correct in China, if at all, in the last several years, Neal, I think as far as the government goes, the CCP is definitely on their heels to some degree. The economy stinks. They’ve they’ve re botched, if you will. The latest outbreak with respect to COVID people are obviously hurting over there and hopefully taking up some of their own will with respect to what they can do. But China still has the government still has a lot of control over their people there. And so I think when you look at Sony, look at the stake they’re putting in the ground here and maybe some of the other stakes in the ground that other companies will do going forward, is it going to move the government off the block to kind of relent or at least not be as controlling when it comes to what comes into the country? And based on history from President Xi and his cohorts, they don’t move off the block. I mean, they stay pretty staunch about how they they rule and regulate. And so it’s going to be a push, push and pull with respect to how things go. But it is a big give up from Sony and some of these other countries companies with respect to other countries and how they deliver their goods and revenues they receive for them.
CAVUTO: Well, but what a tangled web they leave. See what I did there? What a tangled. It’s basic cable.
MARTIN: I said it better myself.
CAVUTO: Yes, I kind of run with it, Scott, the best way I can. Good seeing you again, my friend, Scott Martin on all of those developments here following what’s happening at the corner of Wall and Broadway.